Preapproval is important if you’re thinking about buying a house. A preapproval is essential because it requires a higher credit score and a down payment.
Preapproval, in simpler terms, is the process by which your lender evaluates your financial status and approves a loan amount. This makes the home-buying process easier.
You can apply for two different types of preapprovals. These preapprovals include:
Full assessment pre-approvalsThis involves a thorough evaluation of your credit report, documentation, and other factors by the lender’s credit department. Your lender will ask many questions and clarify all documents before a full assessment can be made. Due to the thorough checks, this type of approval can take a few extra days.
System Generated Preapprovals: In the case of preapproval, it is more dependent on the information that you provide with your application. Documents submitted through this process are not fully assessed. In this case, preapproval is usually system-generated. It can be received within hours or even on the spot.
The Benefits of Preapproval
Preapprovals offer a variety of benefits. Below are some of the most important benefits.
- Validity: Since most preapprovals for home loans are valid for three months, it is worth considering, as you can then look for properties in your price range before deciding whether to borrow the money. It also gives you time to prepare your documents.
- Borrowing Information: It can be difficult to know how much money you can borrow when buying a house. Preapprovals can help you find out how much you can borrow, as well as your maximum purchase price and maximum loan. You can also determine the amount you are able to pay back if you take out a mortgage.
- Shop Confidently: A preapproval will allow you to move forward with confidence in the real estate marketplace, narrowing your options as you search for your dream house.
- Trustworthiness When a seller sees that you have preapproval, they will consider you to be trustworthy and serious about buying a home. Lenders will also be more likely to approve you for a loan if you have a preapproval.
- Your negotiation power: Preapprovals will give you an extra edge when house-hunting.
- Save time: No need to unthinkingly go house hunting. By eliminating those options that are out of your budget, you can save time and energy.
Preapprovals are a good way to get an idea of what you can afford, but they do not guarantee that you will receive the loan. All your documentation must be in order. You may not be able to control the circumstances that affect your preapproval. Here is an infographic to help you get your preapprovals correct. It explains all the requirements and procedures. Take a look.